Identification

• A non-qualified plan does not meet the requirements under the IRS or Employee Retirement Income Security Act of 1974 (ERISA) to receive certain tax benefits that are available to plans that do meet IRS and ERISA requirements.
  
  

Significance

• A non-qualified plan will not allow pretax or tax deductible contributions. Additionally, any investment gains upon distribution from the plan may also be taxed. These taxes, as those on qualified plans, are assessed at ordinary income tax rates.
  
  

Advantage

• The advantage of non-qualified plans is that they do not have any contribution limits. Because non-qualified plans do not have the same tax benefits as qualified plans, the IRS does not restrict contributions to them. This means that you may enhance your retirement savings beyond what a qualified plan could ever give you. Also, you may contribute to a non-qualified plan in addition to contributing to a qualified plan, without affecting your qualified plan contribution limits. Finally, you are allowed to keep your non-qualified plan for as long as you live, without any required minimum distribution (which is required for many qualified retirement accounts).
  
  

Disadvantage

• The disadvantage to a non-qualified plan is that the lack of tax benefits may decrease your overall savings. An annuity is an example of a non-qualified retirement plan. Annuities only accept after-tax contributions. While the money is in the annuity, no tax is due on the savings. When you withdraw money from the annuity, income tax is due on the investment gain.